China has long been the factory of the world. But as wages there rise, manufacturers are looking to other countries and regions. Meanwhile, African countries have a huge and burgeoning population of young people looking for jobs. So now many wonder—could Africa be the next big destination for manufacturers? And if not, then what?
CGD senior fellows Vijaya Ramachandran and Alan Gelb recently caused a bit of a stir with a new paper that tackles those very questions. On this week’s podcast, Ramachandran joins me to discuss their findings and the implications.
“We found that for many countries in sub-Saharan Africa, labor costs are much higher than they are in Bangladesh or China or other parts of Asia,” Ramachandran tells me—higher than you would expect for low- and middle-income countries.
The reasons for these higher costs are unclear—though Ramachandran has some theories—but they do suggest that Africa may not be as attractive a destination for manufactures as hoped.
So what’s the alternative? “Many countries in Africa have a booming services sector, and that’s I think a very positive thing,” Ramachandran tells me, also highlighting sustainable tourism as a possibility.
“We want to be sure that when governments are thinking about how to invest in economic development and in job creation, they are aware of what the costs and benefits are of investing in each of these sectors,” Ramachandran says.